Information Failures

Information failure is a type of market failure where individuals or firms have a lack of information about economic decisions.

There are different types of information failure:

1. Information asymmetries - where one part has access to information that another party doesn’t.
2. Failure to disclose information - in many economic transactions, agents may not make full disclosure.
3. Difficulty in estimating costs and benefits.
4. Lack of awareness - demerit goods and, sometimes, merit goods, have degrees of information failure.
5. Information bias - such as regulatory capture: e.g. the government setting up regulators to deal with natural monopolies, but its over reliance on a certain firm may thus make it more sympathetic to the firm (and this may sway decision making).
6. Moral hazard - individuals alter their behaviour because of certain guarantees.